Tuesday, October 5, 2010

Japan Didn't Just Cut Rates

The Bank of Japan didn't just push rates closer to zero. They announced they may buy Reits and ETFs.

Here is the relevant part of BOJ's statement:

As assets to be purchased, the Bank will examine long-term government bonds, treasury discount bills, commercial paper (CP),asset-backed CP (ABCP), corporate bonds, exchange-traded funds(ETFs), and Japan real estate investment trusts (J-REITs). As a fund provisioning method other than the purchase of assets, the Bank will utilize the fixed-rate funds-supplying
operation against pooled collateral. -- The purchases of the ETFs and J-REITs are conditional on receiving approval pursuant to the Bank of Japan Act.

The Japanese authorities have always been big advocates of industrial policy, but the purchase of REITs and ETFs has the potential to manipulate even more of the economy into government control.

What gets me about Krugman's line of thinking, is that his strategy is akin to a gambler in Las Vegas that has lost half his fortune and decides that he will get it back by going "all-in". If it doesn't work out, which is common, the gambler has played his last game and goes home with empty pockets. If we spend the kind of money Krugman is suggesting and it fails, we are economically destroyed at that point and left with only horrific options.